Pound in danger


The failure of the GBPUSD to hold onto another rebound above 1.3250 last week was of

course all driven by the continued lack of traction on the Brexit front. Personally speaking

given the backdrop of the news last week, I am actually quite surprised that it didn’t fall

below 1.30 again.

Perhaps that was down to rising speculation that the can will be kicked even further down

the road with the implementation of an extended transition period, or some other kind of

interim fudge. That assumes of course, not just a potential proposition from this side of the

channel, but one that would be well greeted in Brussels too.


In a nutshell, all hope and not much more quite honestly and increasingly this all looks

headed to a conclusion that some might argue was always going to be the case. Indeed,

right now, I simply cannot see any reason to dispute such a conclusion either, irrespective of

all this ‘95% agreed’ talk. Only 100% agreed is what really counts and even then; any deal

whatever it is, will still require ratification, not just here, but also from the other 27 EU

member states.


The fact that the Bank of England continue to stress they are ‘preparing for the worst case

scenario rather than hoping for the best’ is something that sure seems in direct opposition

to the government’s stance and a good deal more realistic to boot.


However, whilst a ‘no deal’ departure isn’t a positive for the currency and it will surely fall

hard on such an outcome; its not actually that which worries me the most. It’s what comes

afterwards that is the real danger as far as I am concerned.


May is of course being kept in power by the very people who are also thwarting some of her

Brexit efforts - a most ridiculous irony-but let’s not forget that it was her decision to call an

election in the first place. A singular lack of judgement on her part and one that has

subsequently and completely stymied her ability to negotiate a more flexible Brexit.


Consequently, she is still in a total ‘no win’ position and whilst no one in her party wants to

take that role away from her right now for obvious reasons, that won’t be the case if she

fails to get backing for any kind of deal, or worse still, ‘no deal’ at all.


Either outcome will be swiftly followed by a general election and one which could so easily

deliver a Labour victory. In my opinion; it’s that outcome that will surely sink the currency. If

anyone reading this thinks such an outcome unlikely, then I would strongly urge against

complacency.


So, whilst a hard Brexit could easily see the pound immediately shed another 10% from the

current levels; its nothing compared to the fall out it could suffer from a Labour victory.

Indeed, lump one on top of the other and we could easily be talking about a 30-50% decline.


Well, I’d be the first to admit that does sound scary and to some very unlikely, but I can and

will back that up with some technical studies which underscore such a prognosis and something that you might find more than just a little interesting. However, I am not going to

do that today though, but please watch out for an update with more detail on this before

the week is out. Meantime, I will continue to try and digest the indigestible!


Key data events due this week.

24/10- 3pm Bank of Canada Monetary policy decision

(increase to 1.75% from 1.5% expected)

25/10- 12.45pm ECB monetary policy decision

(no change expected in any of the headline rates)

26/10-1.30pm Second reading of US Q3 GDP

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